Like the monster from a horror movie that will not stay still no matter what is thrown at it, there are already suggestions that the apparent “final” decisions related to the estate tax may not actually be all that final.
As we previously explained, as part of the fiscal cliff compromise bill certain estate tax issues were seemingly made permanent. The exemption level was kept at $5.12 million and indexed to inflation. The top rate was set at 40%. Both of these figures were less intrusive than that original proposals from the White House and far less severe than those mandated by the fiscal cliff itself. Many observers were happy with the outcome, no matter what their personal preferences, for the fact that it at least offered some stability. Having an uncertain tax rate is never a welcome prospect when planning for the future.
Also, as pointed out in a recent article discussed the estate tax components of the bill, the tax will continue to be “portable.” This means that one spouse may use their deceased spouse’s “unused” portion of the exemption level. This is a very helpful tool which allows more assets to pass tax-free without the need for more complex estate planning techniques.
However, that actual permanence of that estate tax situation is in doubt. For one thing, there is actually never any assurance that any current tax will remain indefinitely. That is because Congress always retains the ability to pass new legislation to alter things. In practical terms, “permanent” is usually used to refer to tax rates that have no sunset date (like the current one).
But there are already some concerns that the estate tax is not necessarily out of the woods. That is because this compromise bill does nothing about the possible spending cuts. Congress and the White House will again have yet another showdown in the coming months to hash out agreement over those cuts and possible need to raise the debt ceiling. Anytime that the parties are in negotiation over these large budget issues, virtually all taxes are theoretically on the table. That means that it is not out of the question that the estate tax rate or exemption level may be edited in some way as part of those future deals.
At the end of the day, none of this alters the inescapable fact that estate planning should be done now. As the last year has demonstrated explicitly, there will never be complete certainty about these issues. But planning by experienced professionals is able to adapt to those permanent uncertainties to provide the security you need.